Reinsurers Look To Bene;t FromFlood Bill’s Private-Market Focus

BY ARTHUR D. POSTAL

THE LEGISLATION reauthorizing the National Flood Insurance Program, passed by a House panel on April 6,
clearly opens the door for reinsurers to play
a strong role in the program.

He says the “NFIP is wise to explore thatoption and relieve taxpayers of the crush-ing financial burden of repaying debt.”Besides giving FEMA the authority tolook into changing the basic concept ofWhile the bill contains several improve-ments, it fails to deal completely with thesubsidy issue—especially the issue of the$17.5 billion deficit the program is running.

Reinsurers are enthusiasticabout the legislation, which ex-plicitly authorizes the FederalEmergency Management Agen-cy (FEMA) to “carry out initia-tives to determine the capacityof private insurers, reinsurersand financial markets to assumea portion of the flood-risk expo-sure in the U.S.”Ironically, while members of Congressare ballyhooing the latest bud-get deal, which cuts the currentbudget by $38 billion, certainprovisions of the NFIP legisla-tion postpone dealing with thedeficit issue.

In this case, it kicks it down
the road for a minimum of the
five-year life of the proposed
legislation, until Sept. 30, 2016.

FEMA, an agency under the
Department of Homeland Security, administers the NFIP.

The bill is H.R. 1309, the FloodIt does so because raisingrates and introducing new areasinto the program has createdacute political difficulties forsome members of Congress.

Insurance Reform Act of 2011.

It was passed by voice vote
by the House Subcommittee on

� THE NFIP REAUTHORIZATION BILL would allow FEMA to assess the capacity of the private reinsurance market to assume a portion of the

Insurance, Housing and Community Opportunity. Industry
officials believe the full House Financial

program's risk, reducing the potential burden on taxpayers.

Services Committee is likely to take up the
bill in early May.

As stated in a document pro-vided by congressional staff tomembers of the subcommitteethat passed the bill, the “im-mediate concerns of many localcommunities and members of Congress arethe new flood-insurance rate maps and themandatory-purchase requirement.”In a statement to NU, Frank Nutter,president of the Reinsurance Associationof America (RAA), says his association “en-thusiastically supports” language in the re-cent House NFIP legislation that promotesthe utilization of reinsurance.

The language specifically allows FEMA
to utilize private-market reinsurance capacity to minimize the likelihood that the
program would need to borrow additional
funds from the Treasury.

The bill addresses these concerns by reestablishing an advisory council on mapping that existed for five years, from 1995
to 2000. These councils consist of FEMA
officials and private-sector experts. Under
the proposed legislation, FEMA would be
required to adjust new maps within six
months of being provided with the recommendations of these councils.

In addition, the bill allows FEMA to assess the capacity of the private reinsurance
market by seeking proposals to assume a
portion of the program’s risk, and it directs
FEMA to submit a report on such assessment
within six months of the bill’s enactment.

FEMA would also be given the power
under the bill to suspend mandatory-purchase requirements for up to three years for
communities that oppose being included
and meet certain criteria.

Nutter says the provision will allow the
NFIP to prepare for losses, unlike now, where
it operates on a pay-as-you-go system.

These provisions are certain to be criticized by the Government Accountability
Office, which several months ago cited the
NFIP as one of 30 “high-risk” programs,
i.e., programs costing the government unnecessary amounts of money. NU

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the program, the bill also gives FEMA new
powers and directives.

For example, it gives the agency theauthority to tear down and rebuild flood-damaged properties. This authority shouldbe considered by FEMA “as an eligibleactivity” for the purpose of mitigation as-sistance, the bill says, with the caveat thatsuch action “must be cost effective.”The bill also makes changes in thepremium structure for the flood insur-ance program.

First, it increases the annual cap on premium rates from 10 percent to 20 percent,
but phases in premiums for properties
newly mapped into the program.

It does so by setting a 50 percent discount from full-risk rates for newly mapped
properties, with annual rate increases thereafter limited by a 20 percent annual cap.

It also phases in full-risk rates for nonresidential properties, as well as second
homes and vacation homes.